Week in Review January 6, 2017

Global stocks got off to a good start to the new year.

The Dow Jones Industrial Average came tantalizingly close to reaching 20,000 on Friday, getting as high as 19999.63 before closing at 19963.80, up 0.3% on the day and 1.1% for the week. The S&P 500 rose 1.8% on the week while NASDAQ took the honors, rising 2.6%. European stocks were likewise up about 1%, as measured by the Stoxx Europe 600. Italian stocks remained on a roll, with the MIB index rising another 2.4%; the index has soared more than 21% in a little over a month. The major Asian indexes were also up well over 1% last week, led by Hong Kong’s Hang Seng index, which gained 2.3%. Japanese stocks rebounded 1.8%, erasing the previous week’s loss.

Government bond yields were slightly lower in the U.S. but sharply higher in Europe. The benchmark 10-year U.S. Treasury note ended the week at 2.42%, down two basis points from the prior week. But the 10-year German bund was up nine bps on the week to 0.30% while yields on comparable Spanish and Italian bonds jumped 14 bps.

Friday’s December jobs report was mostly positive, with wage growth the biggest news. Nonfarm payrolls rose by 156,000, about 20,000 less than Street expectations, although the November figure was revised sharply upward to 204,000 from the 178,000 originally reported. For the full year, job growth totaled about 2.2 million jobs, or an average of about 180,000 a month, making it the weakest year since 2011. The unemployment rate rose slightly to 4.7% from 4.6%. On the positive side, average hourly earnings grew by 0.4% during the month and 2.9% compared to a year earlier, the biggest annual gain in more than seven years.

In addition to the December jobs report, several other important economic reports were released. The Institute for Supply Management’s two purchasing managers’ indexes remained well in expansion territory. The manufacturing index rose to 54.7 in December, its fourth straight increase and the fastest pace in two years; new orders jumped 7.2 points to 60.2, also a two-year high. The non-manufacturing index held steady at 57.2, while new orders rose 4.6 points to 61.6. December auto sales rose to 1.69 million vehicles, 3.1% more than the same month in 2015 despite one less sales day. The annualized selling rate of 18.43 million was the highest since July 2005. For the full year, car and truck manufacturers sold 17.55 million vehicles, up from 17.48 million in 2015. Factory orders for November fell 2.4%, but excluding the volatile transportation sector they were actually up 0.1%. Construction spending rose 0.9%.

Reports/dates/facts/links worth paying attention to over the next week: